Rating Rationale
May 05, 2021 | Mumbai
Privi Speciality Chemicals Limited
Ratings reaffirmed at 'CRISIL A+ / Stable / CRISIL A1 '; rated amount enhanced for Bank Debt
 
Rating Action
Total Bank Loan Facilities RatedRs.817 Crore (Enhanced from Rs.583.05 Crore)
Long Term RatingCRISIL A+/Stable (Reaffirmed)
Short Term RatingCRISIL A1 (Reaffirmed)
1 crore = 10 million
Refer to Annexure for Details of Instruments & Bank Facilities

Detailed Rationale

CRISIL Ratings has reaffirmed its ‘CRISIL A+/Stable/CRISIL A1’ ratings on the bank facilities of Privi Speciality Chemicals Limited (PSCL).

 

The ratings continue to reflect PSCL’s strong business risk profile, driven by an established market position in the bulk aroma chemicals industry, long-standing customer relationships, strong relationship with suppliers, and improving profitability and asset utilisation. The ratings also factor in an above-average financial risk profile because of a comfortable capital structure and adequate debt protection metrics. These strengths are partially offset by exposure to any sudden and sharp fluctuation in foreign exchange (forex) rates, volatility in prices of raw material, particularly crude derivatives, and large working capital requirement.

Analytical Approach

For arriving at the ratings, CRISIL Ratings has considered the consolidated financials of PSCL and its wholly owned subsidiaries – Privi Biotechnologies Pvt Ltd and Privi Organics, USA, which are strategically important to, and have a significant degree of operational integration with PSCL.

 

Please refer Annexure - Details of Consolidation, which captures the list of entities considered and their analytical treatment of consolidation.

Key Rating Drivers & Detailed Description

Strengths:

  • Established market position, longstanding customer relationships, and diversified product basket: Benefits from the promoters' two-decade-long experience in the industry, established relationships with suppliers and customers, and a portfolio of 65 products (across four chemical categories - pinene, citral, phenol, and sandalwood) should continue to support the business risk profile. Pinene-based products—dihydromyrcenol and amber fleur—account for sizeable revenue. Business is also bolstered by the key supplier status for all major global customers with which the company has a healthy relationship. Exports to all the major markets and is the preferred supplier to the top flavor and fragrance (F&F) houses of the world like Givaudan (Switzerland), Firmenich (Switzerland), Symrise (Germany) and leading FMCG players like P&G and Henkel. CRISIL believes that PSCL’s established industry presence, diversified product basket and long and established relations with its reputed clientele bolsters its business risk profile and the same will also facilitate the company in steady ramp up in its operations.

 

  • Strong relationship with suppliers, improving profitability and asset utilisation: The company is one of the few players globally with capability to manufacture key inputs alpha and beta pinene from basic raw materials, crude sulphate turpentine and/or gum turpentine oil. The backward integration for key inputs and insulates it from fluctuations in alpha and beta pinene. The arrangements with suppliers for raw material procurement also support the company’s profitability. It also has tie-up for 65% of its capacity with customers on yearly basis, insulating from fluctuation of key products in spot market. This, coupled with steady increase in capacity utilisation has led to improved operating margin over past three fiscals.

 

  • Above-average financial risk profile: As on March 31, 2021, networth is estimated at Rs.690.39 crore, while the gearing and total outside liabilities to adjusted networth (TOLANW) ratio are estimated at 0.75 time and 1.05 times, respectively (0.83 time and 1.26 times, respectively, a year ago). Despite planned capex over the medium term, the capital structure is expected to remain comfortable with gearing and TOLANW ratio at below 1 time and 1.2 times, respectively. Debt protection metrics were comfortable, with estimated interest coverage ratio of 5.81 times and net cash accrual to total debt ratio of 0.29 time in fiscal 2021. The debt protection metrics have improved with the increased scale of operations and consequently healthy profitability, and is expected to remain at similar levels.

 

Weaknesses:

  • Exposure to sudden and sharp fluctuation in forex rates and volatility in raw material prices: Exports account for 70% of revenue. While raw material imports form a partial natural hedge, the remaining is covered through forward contracts. However, the operating margin remains vulnerable to any sharp and sudden forex rate fluctuations. The company's operating margin is also exposed to volatility in prices of crude derivatives-based raw material, which form close to 30% of total raw material component.

 

  • Large working capital requirement: Operations are working capital intensive marked by estimated gross current assets (GCAs) of 179 days as on March 31, 2021. An inventory of 90-120 days is maintained necessitated by the imports and the transit time involved. Furthermore, as the company deals with large global players, it has to extend an open credit of 60-120 days. Debtors are estimated at 64 days as on March 31, 2021 as against 101 days as on March 31, 2019. This was on account of supplier vendor finance facility availed by the company. The working capital cycle is expected to remain stretched, leading to dependence on short-term debt and letter of credit-based procurements with usance up to 180 days. With the scale of operations expected to increase over the medium term, CRISIL estimates working capital requirement to remain large over the medium term.

Liquidity: Strong

PSCL enjoys strong liquidity driven by expected cash accruals of more than Rs.150 crores per annum in fiscals 2022 and 2023, and cash and cash equivalents of Rs.35 crores as on March 31, 2021. POIL also has access to fund-based limits of Rs.410 crores, utilized to the tune of 52% on an average over the 11 months ended February 2021. The company has long term repayment obligations around Rs.34 crores and Rs.54 crores in fiscal 2022 and 2023, respectively. With a gearing of 0.75 times, PSCL has sufficient gearing headroom, to raise additional debt to meet its capex requirement. Its bank lines are expected to meet its incremental working capital requirements

Outlook Stable

CRISIL Ratings believes PSCL will benefit from optimum utilization of capacity, addition of customers, and higher marginyielding products. A prudent funding mix and commitment towards maintenance of the capital structure and debt coverage will ensure sustenance of the financial risk profile over the medium term.

Rating Sensitivity factors

Upward factors

  • Strengthening of business risk profile, driven by ramp-up of revenues and profitability, while diversifying product base
  • Controlled reliance on external debt with working capital cycle (below 150 day), leading to TOLANW below 1 time

 

Downward factors

  • Weakening of debt protection metrics, or gearing exceeding 1 over the medium term due to any unanticipated capital expenditure or acquisitions
  • Weaker profitability because of high cost of production, slower ramp-up, or lower realisations, impacting accruals

About the Company

PSCL, incorporated in 1985, manufactures aroma chemicals, which are used as ingredients for manufacturing fragrances. The company presently has four manufacturing facilities at Mahad (in Maharashtra) and Jhagadia, Gujarat. Operations are managed by Mr. Mahesh Babani and Mr. D B Rao.

 

Oleo chemicals and nutraceuticals business of Privi Organics India Limited’s (POIL) parent Fairchem Speciality Ltd (FSL) was demerged into a separate entity and POIL was merged with FSL. Further, FSL has been renamed to Privi Speciality Chemicals Limited (PSCL) in August, 2020

Key Financial Indicators

Particulars

Unit

2020

2019

Revenue

Rs.Crore

1329.5

1091.6

Profit After Tax (PAT)

Rs.Crore

146

76

PAT Margin

%

11.0

7.0

Adjusted debt/adjusted networth

Times

0.83

0.94

Interest coverage

Times

6.81

7.68

 

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL Ratings' complexity levels are assigned to various types of financial instruments. The CRISIL Ratings' complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL Ratings' complexity levels for instruments that they consider for investment. Users may also call the Customer Service Helpdesk with queries on specific instruments.

Annexure - Details of Instrument(s)

ISIN

Name of instrument

Date of Allotment

Coupon Rate (%)

Maturity date

Issue size (Rs. Crore)

Complexity level

Rating assigned With outlook

NA

Term Loan

NA

NA

Dec-27

407

NA

CRISIL A+/Stable

NA

Fund-Based Facilities

NA

NA

NA

310

NA

CRISIL A+/Stable

NA

Non-Fund Based Limit

NA

NA

NA

100

NA

CRISIL A1

 

Annexure – List of entities consolidated

Names of Entities Consolidated

Extent of Consolidation

Rationale for Consolidation

Privi Speciality Chemicals Limited

Full

Strategically important and have a significant degree of operational integration

Privi Biotechnologies Pvt Ltd

Full

Privi Organics, USA

Full

 

Annexure - Rating History for last 3 Years
  Current 2021 (History) 2020  2019  2018  Start of 2018
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund Based Facilities LT 717.0 CRISIL A+/Stable   -- 25-09-20 CRISIL A+/Stable   --   -- --
Non-Fund Based Facilities ST 100.0 CRISIL A1   -- 25-09-20 CRISIL A1   --   -- --
All amounts are in Rs.Cr.
 
 
Annexure - Details of Bank Lenders & Facilities
Facility Name of Lender Amount (Rs.Crore) Rating
Fund-Based Facilities Citibank N. A. 50 CRISIL A+/Stable
Fund-Based Facilities HDFC Bank Limited 90 CRISIL A+/Stable
Fund-Based Facilities IDFC FIRST Bank Limited 30 CRISIL A+/Stable
Fund-Based Facilities Kotak Mahindra Bank Limited 60 CRISIL A+/Stable
Fund-Based Facilities RBL Bank Limited 40 CRISIL A+/Stable
Fund-Based Facilities Standard Chartered Bank Limited 40 CRISIL A+/Stable
Non-Fund Based Limit Citibank N. A. 10 CRISIL A1
Non-Fund Based Limit HDFC Bank Limited 10 CRISIL A1
Non-Fund Based Limit IDFC FIRST Bank Limited 30 CRISIL A1
Non-Fund Based Limit Kotak Mahindra Bank Limited 30 CRISIL A1
Non-Fund Based Limit RBL Bank Limited 10 CRISIL A1
Non-Fund Based Limit Standard Chartered Bank Limited 10 CRISIL A1
Term Loan Citibank N. A. 110 CRISIL A+/Stable
Term Loan HDFC Bank Limited 76.82 CRISIL A+/Stable
Term Loan HDFC Bank Limited 53.95 CRISIL A+/Stable
Term Loan ICICI Bank Limited 34 CRISIL A+/Stable
Term Loan IDFC FIRST Bank Limited 30 CRISIL A+/Stable
Term Loan Kotak Mahindra Bank Limited 70 CRISIL A+/Stable
Term Loan RBL Bank Limited 32.23 CRISIL A+/Stable

This Annexure has been updated on 2-Sep-2021 in line with the lender-wise facility details as on 17-Aug-2021 received from the rated entity.

Criteria Details
Links to related criteria
CRISILs Approach to Financial Ratios
Rating criteria for manufaturing and service sector companies
CRISILs Bank Loan Ratings - process, scale and default recognition
Rating Criteria for Chemical Industry
CRISILs Criteria for Consolidation
The Rating Process
Understanding CRISILs Ratings and Rating Scales

Media Relations
Analytical Contacts
Customer Service Helpdesk
Saman Khan
Media Relations
CRISIL Limited
D: +91 22 3342 3895
B: +91 22 3342 3000
saman.khan@crisil.com

Naireen Ahmed
Media Relations
CRISIL Limited
D: +91 22 3342 1818
B: +91 22 3342 3000
 naireen.ahmed@crisil.com
Rahul Subrato Kumar Guha
Director
CRISIL Ratings Limited
D:+91 22 4097 8320
rahul.guha@crisil.com

Ankita Gupta
Associate Director
CRISIL Ratings Limited
D:+91 22 4097 8104
ankita.gupta@crisil.com

Prayag Sinha
Senior Rating Analyst
CRISIL Ratings Limited
D:+91 22 3342 3842
Prayag.Sinha@crisil.com		Timings: 10.00 am to 7.00 pm
Toll free Number:1800 267 1301

For a copy of Rationales / Rating Reports:
CRISILratingdesk@crisil.com
 
For Analytical queries:
ratingsinvestordesk@crisil.com

 

Note for Media:
This rating rationale is transmitted to you for the sole purpose of dissemination through your newspaper / magazine / agency. The rating rationale may be used by you in full or in part without changing the meaning or context thereof but with due credit to CRISIL Ratings. However, CRISIL Ratings alone has the sole right of distribution (whether directly or indirectly) of its rationales for consideration or otherwise through any media including websites, portals etc.


About CRISIL Ratings Limited (A subsidiary of CRISIL Limited)

CRISIL Ratings pioneered the concept of credit rating in India in 1987. With a tradition of independence, analytical rigour and innovation, we set the standards in the credit rating business. We rate the entire range of debt instruments, such as, bank loans, certificates of deposit, commercial paper, non-convertible / convertible / partially convertible bonds and debentures, perpetual bonds, bank hybrid capital instruments, asset-backed and mortgage-backed securities, partial guarantees and other structured debt instruments. We have rated over 33,000 large and mid-scale corporates and financial institutions. We have also instituted several innovations in India in the rating business, including rating municipal bonds, partially guaranteed instruments and infrastructure investment trusts (InvITs).
 
CRISIL Ratings Limited ("CRISIL Ratings") is a wholly-owned subsidiary of CRISIL Limited ("CRISIL"). CRISIL Ratings Limited is registered in India as a credit rating agency with the Securities and Exchange Board of India ("SEBI").
 
For more information, visit www.crisilratings.com 



About CRISIL Limited

CRISIL is a global analytical company providing ratings, research, and risk and policy advisory services. We are India's leading ratings agency. We are also the foremost provider of high-end research to the world's largest banks and leading corporations.

CRISIL is majority owned by S&P Global Inc., a leading provider of transparent and independent ratings, benchmarks, analytics and data to the capital and commodity markets worldwide

For more information, visit www.crisil.com

Connect with us: TWITTER | LINKEDIN | YOUTUBE | FACEBOOK

CRISIL PRIVACY NOTICE
 
CRISIL respects your privacy. We may use your contact information, such as your name, address, and email id to fulfil your request and service your account and to provide you with additional information from CRISIL.For further information on CRISIL’s privacy policy please visit www.crisil.com.

DISCLAIMER

This disclaimer forms part of and applies to each credit rating report and/or credit rating rationale (each a "Report") that is provided by CRISIL Ratings Limited  (hereinafter referred to as "CRISIL Ratings") . For the avoidance of doubt, the term "Report" includes the information, ratings and other content forming part of the Report. The Report is intended for the jurisdiction of India only. This Report does not constitute an offer of services. Without limiting the generality of the foregoing, nothing in the Report is to be construed as CRISIL Ratings providing or intending to provide any services in jurisdictions where CRISIL Ratings does not have the necessary licenses and/or registration to carry out its business activities referred to above. Access or use of this Report does not create a client relationship between CRISIL Ratings and the user.

We are not aware that any user intends to rely on the Report or of the manner in which a user intends to use the Report. In preparing our Report we have not taken into consideration the objectives or particular needs of any particular user. It is made abundantly clear that the Report is not intended to and does not constitute an investment advice. The Report is not an offer to sell or an offer to purchase or subscribe for any investment in any securities, instruments, facilities or solicitation of any kind or otherwise enter into any deal or transaction with the entity to which the Report pertains. The Report should not be the sole or primary basis for any investment decision within the meaning of any law or regulation (including the laws and regulations applicable in the US).

Ratings from CRISIL Ratings are statements of opinion as of the date they are expressed and not statements of fact or recommendations to purchase, hold, or sell any securities / instruments or to make any investment decisions. Any opinions expressed here are in good faith, are subject to change without notice, and are only current as of the stated date of their issue. CRISIL Ratings assumes no obligation to update its opinions following publication in any form or format although CRISIL Ratings may disseminate its opinions and analysis. Rating by CRISIL Ratings contained in the Report is not a substitute for the skill, judgment and experience of the user, its management, employees, advisors and/or clients when making investment or other business decisions. The recipients of the Report should rely on their own judgment and take their own professional advice before acting on the Report in any way. CRISIL Ratings or its associates may have other commercial transactions with the company/entity.

Neither CRISIL Ratings nor its affiliates, third party providers, as well as their directors, officers, shareholders, employees or agents (collectively, "CRISIL Ratings Parties") guarantee the accuracy, completeness or adequacy of the Report, and no CRISIL Ratings Party shall have any liability for any errors, omissions, or interruptions therein, regardless of the cause, or for the results obtained from the use of any part of the Report. EACH CRISIL RATINGS' PARTY DISCLAIMS ANY AND ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OF MERCHANTABILITY, SUITABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE. In no event shall any CRISIL Ratings Party be liable to any party for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, or losses (including, without limitation, lost income or lost profits and opportunity costs) in connection with any use of any part of the Report even if advised of the possibility of such damages.

CRISIL Ratings may receive compensation for its ratings and certain credit-related analyses, normally from issuers or underwriters of the instruments, facilities, securities or from obligors. CRISIL Rating's public ratings and analysis as are required to be disclosed under the regulations of the Securities and Exchange Board of India (and other applicable regulations, if any) are made available on its web sites, www.crisil.com (free of charge). Reports with more detail and additional information may be available for subscription at a fee - more details about ratings by CRISIL Ratings are available here: www.crisilratings.com.

CRISIL Ratings and its affiliates do not act as a fiduciary. While CRISIL Ratings has obtained information from sources it believes to be reliable, CRISIL Ratings does not perform an audit and undertakes no duty of due diligence or independent verification of any information it receives and / or relies in its Reports. CRISIL Ratings has established policies and procedures to maintain the confidentiality of certain non-public information received in connection with each analytical process. CRISIL Ratings has in place a ratings code of conduct and policies for analytical firewalls and for managing conflict of interest. For details please refer to: http://www.crisil.com/ratings/highlightedpolicy.html

Rating criteria by CRISIL Ratings are generally available without charge to the public on the CRISIL Ratings public web site, www.crisil.com. For latest rating information on any instrument of any company rated by CRISIL Ratings you may contact CRISIL RATING DESK at CRISILratingdesk@crisil.com, or at (0091) 1800 267 1301.

This Report should not be reproduced or redistributed to any other person or in any form without a prior written consent of CRISIL Ratings.

All rights reserved @ CRISIL Ratings Limited. CRISIL Ratings Limited is a wholly owned subsidiary of CRISIL Limited.

CRISIL Ratings uses the prefix ‘PP-MLD’ for the ratings of principal-protected market-linked debentures (PPMLD) with effect from November 1, 2011 to comply with the SEBI circular, "Guidelines for Issue and Listing of Structured Products/Market Linked Debentures". The revision in rating symbols for PPMLDs should not be construed as a change in the rating of the subject instrument. For details on CRISIL Ratiings' use of 'PP-MLD' please refer to the notes to Rating scale for Debt Instruments and Structured Finance Instruments at the following link: www.crisil.com/ratings/credit-rating-scale.html